WESTPAC: Australian consumer sentiment is at a 2015 low, but don't panic

Australian consumer sentiment fell 3.2% in July to 92.2, according to the latest release of the Westpac Melbourne Institute consumer sentiment survey. That’s taken sentiment to the lowest level since December last year.

Westpac chief economist Bill Evans attributed the weakness to “sensational” coverage of the recent moves in Shanghai stocks and what was happening in Europe but implied that he thought a bounce back would occur. Evans said “further evidence that this headline impact from overseas news is unlikely to be sustained can be found in the response of households to the outlook for the unemployment rate”.

He added that the “index of Unemployment Expectations actually fell 1.3% in the month indicating that slightly fewer consumers expect unemployment to rise. Households remain highly concerned about job prospects but the recent overseas developments did not exacerbate those concerns.”

That’s good news but the fact that the overall index has been below 100 for 15 of the last 17 months speaks volumes for the fragility of sentiment at the moment. That’s evident from the assessment of respondents to the questions about where they are relative to 12 months ago and the future.

Evans said:

The sub-index tracking views on ‘family finances compared to a year ago’ fell by 10.4% while that tracking assessments of ‘family finances over the next 12 months’ rose by 6.9%. The sub-index on ‘economic conditions over the next 12 months’ fell by 10.5% and that on ‘economic conditions over the next 5 years’ fell by 4.4%.

All up though, Evans and his colleagues’ assessment is that the fall in sentiment won’t adversely impact the economic outlook and that the RBA is on hold.

“Despite current market expectations we would also put a limited chance of a move in November,” Evans said. “In fact, we are comfortable to retain the view that rates will remain on hold for the remainder of this year and throughout 2016.”